Summary

A "subject to contract" restriction in an offer to settle was found not to have been lifted either expressly or by implication, and acceptance of the offer was not binding until the parties had signed an arbitration award reflecting the terms of the settlement.

Facts

The appellant firm of solicitors (M) appealed against a decision that it was liable for the costs of a hearing in proceedings brought by the respondent insurer (Z). M also applied for permission to appeal against a decision striking out, at Z's behest, two of M's applications in related proceedings. Part 8 proceedings brought by Z also fell to be determined.

Z was M's professional indemnity insurer. Z exercised its power under the policy to take control of a claim against M. However, M took various steps in the proceedings, including serving its own defence. The proceedings were stayed pending arbitration of the issue of who was entitled to represent M. M made an offer to Z, subject to contract, to settle the dispute. Z accepted the offer, and the terms were reflected in the final arbitration award by consent; M was to surrender control of the main proceedings to Z and there would be no liability as to costs as between them in relation to the dispute. Between accepting the offer and the final arbitration award, Z had brought proceedings seeking a declaration that it was entitled to instruct solicitors. By the time of the hearing, the arbitration award had been made, and the only issue was whether the award covered the costs of the hearing. That issue was decided in Z's favour, forming the subject of the instant appeal. Meanwhile, following the arbitration award, M brought two applications in the main proceedings which Z succeeded in having struck out as an abuse of process. That decision formed the subject of M's instant application for permission to appeal. M raised further complaints against Z, which were referred to arbitration. Z issued Pt 8 proceedings to determine whether the award and decision relating to costs prevented M from raising such complaints.

M submitted that (1) Z's proceedings had not yet been issued when Z accepted its offer of settlement, and accordingly, the settlement's term as to costs could not have been relevant to those proceedings; (2) the decision to strike out M's applications, in Z's favour, was fundamentally flawed because Z was not a party.

Held

(1) It was well established that correspondence stated to be "subject to contract" provided a protective umbrella over that correspondence, meaning that no binding agreement could be concluded in that correspondence. Z's acceptance of the offer could have been resiled from until the parties had signed the award. It could not be said that the "subject to contract" restriction had been lifted expressly or by implication. The costs term of the settlement, which expressly provided for no orders as to costs in respect of both High Court proceedings and the arbitration, became operative on the day the award was signed, by which time, Z's proceedings had been issued, and in any event, the parties had clearly intended the clause to apply to those proceedings, Cohen v Nessdale Ltd [1982] 2 All E.R. 97 applied and Jirehouse Capital v Beller [2009] EWHC 2538 (Ch)considered. (2) M's applications were an abuse of process in that they were obvious breaches of the terms of the award. Z was exercising its control rights on behalf of M, but even if the application was brought by Z, Z's position was analogous to a non-party affected by a freezing injunction, who would have a right to intervene in proceedings. Z could have applied to be joined under CPR r.19.2, and there was no basis on which M could have objected to Z's joinder. At best, Z's non-joinder was a procedural irregularity which did not affect the proceedings by virtue of CPR r.3.10 and could be cured. The appeal had no prospect of success. (3) The terms of the award, which permitted Z to settle the claim or defend on such terms as it saw fit, did not relieve Z of the obligation to act bona fide in respect of the insured when, in a subsequent exercise of its powers of control, it compromised the claim. The award and decision prevented M from interfering in control but did not prevent M from challenging how Z exercised control. M was entitled to raise fresh complaints which were not concerned with the issue of control.